Demand levels remain high and market fundamentals are strong for Kansas City's industrial market.
Asking rents continue to push upwards and construction is at record-breaking levels for the Kansas City metro. Despite concerns surrounding inflation and interest rates, the need for industrial product is not expected to wane.
Key Takeaways
• Absorption totals continue to keep pace with new supply
• The biggest manufacturing industries continue to report strong growth
• Tightening availability should keep asking rental rates on the rise going forward
Kansas City Highlights
The Kansas City industrial market remains the most active commercial real estate sector as demand for modern industrial space continues to reach new levels. Driven by rapid e-commerce growth, the industrial sector continues to perform exceptionally well.
Recent Activity Within the Industrial Market
The outlook throughout 2022 remains positive as bulk warehouse/distribution space remains in high demand by e-commerce retailers and manufacturers alike. Despite lingering economic concerns surrounding inflation and rising interest rates, the need for industrial product is not expected to wane. E-commerce and overall retail growth will continue to fuel the need for industrial space for the foreseeable future.
Economic activity in the manufacturing sector grew in June, with the overall economy achieving a 25th consecutive month of growth, according to the Institute for Supply Chain Management’s (ISM) Production Manufacturing Index (PMI). ISM registered a PMI reading of 53.01% for June, a slight decline relative to the past quarter, which continues to be hampered by supply chain constraints. ISM also reported that 15 of the 18 manufacturing sectors it tracks saw growth in June. The six biggest manufacturing industries all continue to report moderate to strong growth.
Recent Growth Around the Metro
Industrial development activity continues to operate at record levels for the market with more than 14.39 million SF under active construction in Q2 2022. The amount of new supply making its way to the Kansas City market is unprecedented, yet absorption totals and demand levels continue to keep pace with the elevated supply. Several additional buildings and planned industrial parks are poised to break ground soon that will further elevate construction levels within the Kansas City metro.
Several large industrial leases were completed throughout the second quarter for the Kansas City Metro. In Johnson County, Simmons Pet Foods leased nearly 760,000 SF at Inland Port LII within LPKC. Clorox leased nearly 568,000 SF within I-35 Logistics Park while Archer-Daniels-Midland leased the first full building at Heartland Logistics in Shawnee. In Executive Park/Northeast, RevLogical leased 517,000 SF at Liberty Commerce Center while Pure Fishing leased 141,000 SF at 1900 N. Corrington. Boot Barn elected to lease nearly 460,000 SF at KCI LogisticsCentre VIII near KCI airport.
From a transactional standpoint, investor demand for industrial properties remains the preferred commercial asset type for several investors. With rising rents, particularly in industrial assets, the outlook for income growth remains strong, which should continue to drive more capital to real estate. Despite challenges related to rising interest rates and fears of a looming recession, strong fundamentals continue to pull in a record pace of investment capital at the national level. Given the current market conditions at the metro level, opportunities continue to arise as recent spec construction development is often sold after stabilization. One example is Blue Springs Commerce Center, a 584,000 SF spec building that was recently fully leased to PepsiCo. HSA, a Chicago-based real estate company, acquired the asset from Flint Development.
